Bangladesh is one of only two nations to maintain a residential embassy in Thimphu. Bhutan was the first country in the world to recognize Bangladeshi independence in 1971. The two states have agreed to develop hydropower in the Himalayas, as well as initiate free trade and transhipment through Bangladeshi ports. They also cooperate in water resources management.

Bhutan has no diplomatic relations with its northern neighbor, the People's Republic of China, and is one of the few countries to not recognise or have relations with either China or Taiwan. The border between Bhutan and China has been closed since the invasion of Tibet in 1959, causing an influx of refugees. The border also remains undelineated; in 1961 China published a map that altered the traditional border.[citation needed] Tensions have since lessened, especially after the signing of a 1998 agreement on border peace and tranquility, the first bilateral agreement between China and Bhutan. Despite the lack of formal diplomatic relations, Bhutan has also maintained an Honorary Consul in Macau since 2000 and Hong Kong since 2004.

In late 2005, Bhutan claimed that Chinese soldiers were building roads and bridges within Bhutanese territory. Bhutanese Foreign Minister Khandu Wangchuk took up the matter with Chinese authorities after the issue was raised in the Bhutanese parliament. In response, Foreign Ministry spokesman Qin Gang of the People's Republic of China has said that the border remains in dispute and that the two sides are continuing to work for a peaceful and cordial resolution of the dispute.[8] The Bhutanese newspaper Kuensel has said that China might use the roads to further Chinese claims along the border.[9]

Historically, ties with India have been close. Both countries signed a first ever Friendship treaty in 1865 between Bhutan and British India. However, when Bhutan became a monarchy, British India was the first country to recognize it and renewed the treaty in 1910. Bhutan was the first country to recognize Indian independence and renewed the age old treaty with the new government in 1949, including a clause that India would assist Bhutan in foreign relations. On February 8, 2007, the Indo-Bhutan Friendship Treaty[10] was substantially revised under the Bhutanese King, Jigme Khesar Namgyel Wangchuck. In the Treaty of 1949 Article 2 read as "The Government of India undertakes to exercise no interference in the internal administration of Bhutan. On its part the Government of Bhutan agrees to be guided by the advice of the Government of India in regard to its external relations."[11] In the revised treaty this now reads as, "In keeping with the abiding ties of close friendship and cooperation between Bhutan and India, the Government of the Kingdom of Bhutan and the Government of the Republic of India shall cooperate closely with each other on issues relating to their national interests. Neither government shall allow the use of its territory for activities harmful to the national security and interest of the other." The revised treaty also includes in it the preamble "Reaffirming their respect for each other's independence, sovereignty and territorial integrity", an element that was absent in the earlier version. The Indo-Bhutan Friendship Treaty of 2007 strengthens Bhutan's status as an independent and sovereign nation.

There also exists bi-lateral agreement between Bhutanese and Indian Government where-in citizens of both nations can travel freely in other country without passport and visa.

The Philippines and Bhutan have no formal relations yet. The Philippines has an embassy in New Delhi, India as representative to dialogues with Bhutan. Numerous senators and high-profile personalities from the Philippines have visited Bhutan and have been pushing for the Gross National Happiness to also be applied in the Philippines, citing its effectiveness and efficiency in nation-building, environmental and cultural conservation, and human rights upholding. Filipino senator Loren Legarda, a United Nations Global Champion for Resilience, has been pushing for greater diplomatic relations between the two countries. In September 2014, the Prime Minister of Bhutan visited the Philippines and the Asian Development Bank headquarters in Manila.[13] In 2018, the Philippines sent its engineers to Bhutan's capital in a bid to develop Bhutan's space program that will be launched in May.[14]

Bhutan has relations with other nations based on transnational issues. Among these issues are extradition, terrorism, and refugees. To a limited extent, Bhutanese law provides frameworks for cooperation with countries which Bhutan has no formal mission.

Bhutan has a legislated policy on extradition of criminals, both to and from the kingdom. Any nation, with or without formal relations, may request the extradition of fugitives who abscond to Bhutan. The Extradition Act requires nations to provide "all relevant evidence and information" about the accused, after which the Royal Government may in its discretion refer the matter to the High Court of Bhutan. The Court may then issue a summons or warrant, conduct an inquiry, and collect evidence, holding the accused for a maximum of 30 days. Alternatively, the Royal Government may refer the matter to the courts for trial within Bhutan. Bhutan imposes punishments for offenses committed in treaty states generally, and for offenses in other states resulting in return to Bhutan. Offenses are weighed according to gravity, determined by a schedule and two-part test: extraditable offenses are those enumerated (including murder, theft, forgery, and smuggling), or which in Bhutan would be punished by a prison term exceeding twelve months.[17] All felonies in Bhutan are punishable by a minimum of three years' imprisonment.[18]

Bhutan will refuse requests for extradition if the Royal Government or its courts determine the person is accused of a political offense.[17]

Bhutan cooperates with India to expel Indian Nagaland separatists; lacking any treaty describing the boundary, Bhutan and China continue negotiations to establish a common boundary alignment to resolve territorial disputes arising from substantial cartographic discrepancies, the largest of which lie in Bhutan's northwest and along the Chumbi salient.

The U.S. has offered to resettle 60,000 of the 107,000 Bhutanese refugees of Nepalese origin now living in seven U.N. refugee camps in southeastern Nepal. Six other nations—Australia, Canada, Norway, Netherlands, New Zealand and Denmark—have offered to resettle 10,000 each.[19]

Other countries also operate resettlement programs in the camps.[20] Norway has already settled 200 Bhutanese refugees, and Canada has agreed to accept up to 5,000 through to 2012.[21]